Industry Bypasses Bids to Hire Bond Agency

VICTOR VALLE and ALAN MALTUNTimes Staff Writers

The city has hired a new financial services company to replace National Engineering Co., a longtime consultant that lost its contract when a key employee was convicted in the kickback scandal that rocked this city last year.

The city awarded the new contract to Bancroft, O'Connor, Chilton & Lavell, a Los Angeles-based securities firm, whose first task will be to arrange refinancing of $160 million in short-term bonds to obtain lower interest rates.

Highest Debt in State

Industry and its redevelopment agencies have a combined bonded indebtedness of more than $1 billion, the most of any city in the state.

The contract with Bancroft, O'Connor, Chilton & Lavell--which was awarded without competitive bidding--replaces an arrangement that since 1975 had provided National Engineering with at least $9.5 million in commissions on bonds issued by the city and its four redevelopment agencies, city records show.

National Engineering forfeited its exclusive contracts as the city's financial, planning and engineering consultant in October. The firm withdrew after it was unable to post a bond required by the city to cover the firm's potential liability for the role of a former employee in a $1.35-million kickback scheme involving construction of the Industry Hills Exhibit-Conference Center.

C. Ronald Rabin, National Engineering's project manager for the construction of the Industry Hills conference center, Industry founder James M. Stafford and five other defendants pleaded guilty last year to federal charges of defrauding the city and two of its redevelopment agencies of $1.35 million on construction contracts for the center. Rabin was sentenced to five years probation and ordered to perform 2,500 hours of community work. Last week, Stafford began serving a 10-year sentence in the federal prison at Lompoc.

In addition to the bond commissions, National Engineering, which had served as a consultant since the city was incorporated in 1957, was paid millions of dollars for planning and designing city projects. Since 1975, when businessman Warner W. Hodgdon took control of the firm, city records show that National Engineering was paid more than $34 million for those services without having to enter into competitive bidding.

'No information was published in which I was able to determine if they made a good or a bad choice. The public has to be aware of the facts . . . .' --James Karsatos, Industry Civic Planning Assn. Hodgdon's company received a 2% commission on all new bonds and the majority of refinanced bonds issued since 1975, according to Robert Vincent of California Municipal Statistics, a San Francisco research firm. In 1983 alone, Hodgdon's firm chalked up more than $3.7 million in commissions, agency records show.

By contrast, Bancroft, O'Connor, Chilton & Lavell will receive a 0.5% fee for preparing new and refinanced bond transactions, which is the normal commission on bond issues, City Atty. Graham Ritchie said.

James Karsatos, president of the Industry Civic Planning Assn., a group of businessmen who oppose many of Industry's redevelopment practices, said the city should explain why National Engineering's commission was four times greater than its successor's.

Ritchie said the city paid Hodgdon higher fees because in the early 1970s, no other bond firms were willing to handle bonds for "bare land" redevelopment of what once was farmland in Industry.

Donald Hunt, National Engineering's attorney, said, "When Hodgdon came to the city (in 1971), there was no successful redevelopment, no general plan, no redevelopment agency. But he took the risk when no one else would, which entitled him to make a bigger profit."

Hunt also claimed that Hodgdon saved the city and its agencies more than $18 million by buying previously sold bonds at a discount rate to reduce the city's debt service, a service for which he charged no extra fee.

But Eugene Jacobs, an attorney specializing in redevelopment law who served for two decades as counsel for the Los Angeles Community Redevelopment Agency and who now teaches law at Brigham Young University, said Los Angeles and other cities issued bonds in the early 1970s for difficult redevelopment projects and paid much lower fees than those charged by National Engineering.

"There's no question in my mind there were many good quality bond firms that could have handled Industry's redevelopment bonds (for lower fees)," Jacobs said.

Karsatos, whose organization has filed a $5-million taxpayers lawsuit against one of the city's four redevelopment agencies in connection with the kickback scheme, also questioned why the city awarded the new securities firm a key contract without competitive bidding, which is the usual practice among municipalities.

Three Bids Is Usual

"Most cities, and in certain cases, the City of Industry, require three competitive bids on any budget item," said Karsatos, a vice president of Kern Foods Inc. "In this case, no information was published (before the city acted) in which I was able to determine if they made a good or a bad choice. The public has to be aware of the facts in the decision-making process."

Defending the city's decision to forgo competitive bidding, Ritchie said the city considered hiring other concerns, but opted not to put the contract up for bidding because Bancroft, O'Connor, Chilton & Lavell already was familiar with the city's bond financing needs.

Ritchie said the firm was hired last August by the Civic-Recreational-Industrial Authority--the redevelopment agency that administers the Industry Hills conference center--to evaluate the agency's ability to meet its bond obligations in the light of the kickback scandal.

National Engineering will close its offices in the city at the end of the month, a spokesman said, and its engineering work has been divided among three new companies, all staffed by former National Engineering employees.

Meanwhile, federal law enforcement officials have said their investigation into corruption in Industry is continuing. Sources close to the investigation say that the investigation is focusing on Mayor John Ferrero and other municipal officials, examining allegations that thousands of dollars in work was done on private residences at city expense and that conversations at City Hall have been illegally taped.